living with sappi SECOND QUARTER RESULTS for the period ended March 2015

Transcription

1 living with sappi SECOND QUARTER RESULTS for the period ended March 2015

2 2nd quarter results Sappi works closely with customers, both direct and indirect, in over 100 countries to provide them with relevant and sustainable paper, paper pulp and dissolving wood pulp products and related services and innovations. Our market-leading range of paper products includes: coated fine papers used by printers, publishers and corporate end-users in the production of books, brochures, magazines, catalogues, direct mail and many other print applications; casting release papers used by suppliers to the fashion, textiles, automobile and household industries; and in our Southern African region, newsprint, uncoated graphic and business papers, premium-quality packaging papers, paper-grade pulp and dissolving wood pulp. 24% 26% 50% 1% 1% 16% 7% 59% 10% 6% 23% 23% 12% 42% *Sales by source North America Europe Southern Africa *Sales by product Coated paper Uncoated paper Speciality paper Commodity paper Dissolving wood pulp Paper pulp Other *Sales by destination North America Europe Southern Africa Asia and other B Our dissolving wood pulp products are used worldwide by converters to create viscose fibre, acetate tow, pharmaceutical products as well as a wide range of consumer products. The pulp needed for our products is either produced within Sappi or bought from accredited suppliers. Across the group, Sappi is close to pulp neutral, meaning that we sell almost as much pulp as we buy. sappi 2nd quarter results 35% 36% 29% * for the period ended March 2015 ** as at March 2015 **Net operating assets North America Europe Southern Africa

3 Highlights for the quarter Profit for the period US$56 million (Q US$32 million) EPS excluding special items 11 US cents (Q US cents) EBITDA excluding special items US$170 million (Q US$171 million) Net debt US$1,916 million (Q US$2,248 million) Successful refinancing of 2018 and 2019 bonds Quarter ended Half-year ended Mar 2015 Mar 2014 Dec 2014 Mar 2015 Mar 2014 Key figures: (US$ million) Sales 1,338 1,573 1,377 2,715 3,072 Operating profit excluding special items (1) Special items (gains) losses (2) (68) (4) 5 (63) (14) EBITDA excluding special items (1) Profit for the period Basic earnings per share (US cents) Net debt (3) 1,916 2,248 2,040 1,916 2,248 Key ratios: (%) Operating profit excluding special items to sales Operating profit excluding special items to capital employed (ROCE) (4) EBITDA excluding special items to sales Return on average equity (ROE) (4) Net debt to total capitalisation (4) Net asset value per share (US cents) (1) Refer to page 19, note 10 to the group results for the reconciliation of EBITDA excluding special items and operating profit excluding special items to segment operating profit, and profit for the period. (2) Refer to page 19, note 10 to the group results for details on special items. (3) Refer to page 22, supplemental information for the reconciliation of net debt to interest-bearing borrowings. (4) Refer to page 21, supplemental information for the definition of the term. sappi 2nd quarter results 1

4 Commentary on the quarter Operating performance in the quarter was in line with our expectations and the equivalent quarter last year. The group generated EBITDA, excluding special items, of US$170 million, operating profit excluding special items of US$104 million and profit for the period of US$56 million. The Specialised Cellulose business continued to generate solid returns during the quarter, with EBITDA, excluding special items, of US$65 million. US Dollar prices for dissolving wood pulp declined compared to the prior quarter due to excess market supply as well as low prices and margins in the viscose staple fibre sector. However, the weaker Rand/Dollar exchange rate enabled the South African mills to maintain Rand pricing and margins. The European business increased profitability but its performance was impacted adversely by higher costs of raw materials due to the weaker Euro/US Dollar exchange rate and particularly weak demand in January. Export paper prices benefited from the weaker Euro. The North American business was boosted by higher coated paper prices and returned to an operating profit in the quarter. This improvement was achieved despite severe weather in the northeast of the United States, which impacted both logistics and production at the Somerset Mill. The paper business in South Africa improved operating performance further in this quarter, with increased sales volumes and prices offsetting increased variable costs. During the quarter we repaid our 2018 and 2019 bonds through the issue of a new 450 million sevenyear bond, with a coupon of 3.375%, and through a drawing from the European revolving credit facility. That facility was also renewed and increased to 465 million (previously 350 million). Earnings per share for the quarter were 11 US cents, compared with 6 US cents (including a gain of 1 US cent in respect of special items) in the equivalent quarter last year. Special items for the quarter included a gain of US$57 million resulting from the transfer of the Sappi Dutch pension fund to a general fund and a positive plantation fair value pricing adjustment of US$18 million for the South African plantations. These benefits were offset by once-off finance charges of US$63 million relating to the refinancing of the 2018 and 2019 bonds. The finance charges included breakage fees, accelerated amortisation of costs and unwinding of an interest rate swap. The cash impact of the refinancing was a negative US$53 million. Cash flow and debt Net cash generation for the quarter of US$82 million was lower than the net cash generated of US$132 million in the equivalent quarter last year as a result of lower working capital inflows due to inventory increases during the period. Capital expenditure in the quarter was US$46 million and mainly related to maintenance and efficiency projects. Net debt of US$1,916 million declined by US$124 million from the prior quarter, as a result of the cash generated from operations, lower working capital and favourable exchange rates on the translation of our debt. Liquidity comprises cash on hand of US$399 million and US$480 million from the committed revolving credit facilities in South Africa and Europe. 2 sappi 2nd quarter results

5 Operating review for the quarter Europe Quarter Quarter Quarter Quarter Quarter ended ended ended ended ended Mar 2015 Dec 2014 Sept 2014 Jun 2014 Mar 2014 million million million million million Sales Operating profit excluding special items Operating profit excluding special items to sales (%) EBITDA excluding special items EBITDA excluding special items to sales (%) RONOA pa (%) Compared to the equivalent quarter last year, the European business benefited from higher average coated woodfree sales prices, lower fixed costs post the disposal of the Nijmegen Mill last year and the transfer of the Sappi Dutch pension fund. Demand was particularly weak in January and there were declines in domestic prices for graphic paper during the quarter. Paper export prices and margins are benefiting from the weaker Euro/US Dollar exchange rate, which to date, has largely offset the associated increase in variable costs, particularly for paper pulp, arising from the currency move. Logistics costs increased due to increased export sales and increased freight rates. The specialities business recorded price and volume gains compared to both the prior quarter and the equivalent quarter last year as we further optimise the business post the conversion at Alfeld. In addition, we recently launched a trial of a new folding boxboard product at our Maastricht Mill to expand our packaging offering further. sappi 2nd quarter results 3

6 North America Quarter Quarter Quarter Quarter Quarter ended ended ended ended ended Mar 2015 Dec 2014 Sept 2014 Jun 2014 Mar 2014 US$ million US$ million US$ million US$ million US$ million Sales Operating profit (loss) excluding special items 7 (4) 25 (9) 5 Operating profit (loss) excluding special items to sales (%) 2.0 (1.1) 6.4 (2.4) 1.3 EBITDA excluding special items EBITDA excluding special items to sales (%) RONOA pa (%) 2.7 (1.6) 9.8 (3.5) 1.9 The North American business returned to profitability following the extended outage at the Somerset Mill in the prior quarter, benefiting from higher coated prices, improved coated sales mix and lower variable costs. The northeast United States experienced historically severe weather conditions during the quarter, negatively affecting productivity and the transport of goods. Dissolving wood pulp sales volumes were lower than both the prior quarter and the equivalent quarter last year as we maximised own-make fibre production for the paper machines at Cloquet in order to improve profitability. The release business continued to be impacted by weaker than expected sales in the coated fabrics segment in China, and the weaker Euro/US Dollar exchange rate negatively impacted US Dollar pricing for sales into Europe. Variable costs compared to both the prior quarter and prior year were lower, with lower chemical and energy prices offsetting high wood costs. Lower fibre costs, from own-make Cloquet pulp production, have also contributed favourably to the result. 4 sappi 2nd quarter results

7 Southern Africa Quarter Quarter Quarter Quarter Quarter ended ended ended ended ended Mar 2015 Dec 2014 Sept 2014 Jun 2014 Mar 2014 ZAR million ZAR million ZAR million ZAR million ZAR million Sales 3,817 3,812 3,972 3,781 3,942 Operating profit excluding special items Operating profit excluding special items to sales (%) EBITDA excluding special items EBITDA excluding special items to sales (%) RONOA pa (%) The Southern African business continued to deliver strong earnings. The exchange rate gains on export sales and fixed cost savings contributed positively to the improvement. Dissolving wood pulp sales volumes were impacted negatively by 7,000 tons for the quarter as a result of the boiler tube leak at the Ngodwana Mill in December. Dissolving wood pulp pricing was supported by the weaker exchange rate, with pricing in Rand higher than the prior quarter and the corresponding quarter last year, despite lower US Dollar prices. The South African paper business continued to progress with increased volumes, pricing and lower logistics and fixed costs more than offsetting increased variable costs. Strong fruit export sales which have benefited from the weaker Rand are boosting demand for our virgin fibre packaging grades. sappi 2nd quarter results 5

8 Outlook Graphic paper markets, particularly for coated mechanical, remain difficult and continued cost pressure from higher paper pulp and wood prices are placing margins under pressure. Lower oil and energy costs are providing some relief. Coated woodfree paper price increases in the US market have widened the gap with European pricing levels; however, no significant increase in imports into the US market has been experienced to date. Textile prices, particularly for those of cotton and viscose, appear to have stabilised over the past few months, after a long period of decline. Dissolving wood pulp prices have followed a similar trend. We remain well positioned to meet the changing market needs. The weaker Rand/US Dollar exchange rate will support the profitability of this business. Capital expenditure in 2015 is expected to be approximately US$280 million and is focused largely on maintenance projects and efficiency improvement investments at our Kirkniemi and Gratkorn mills. We estimate that, post the refinancing of our 2018 and 2019 bonds, reduction in debt and movements in currencies, net finance costs will be approximately US$110 million per annum. At current exchange rates, we expect to reduce net debt levels further by year-end. The third quarter is seasonally weaker in both North America and Europe. The pulp mill upgrade at Gratkorn and regular annual maintenance shuts in all three regions will negatively impact the results of the third quarter by approximately US$21 million when compared to the equivalent quarter last year. We expect operating performance for the year will be broadly similar to 2014 despite a number of significant once-off impacts from various capital projects. At current exchange rates, the translation of Euro and Rand results to US Dollar may have an impact on group results. Nevertheless, earnings per share excluding special items are expected to be substantially better than that of the prior year. On behalf of the board S R Binnie Director G T Pearce Director 14 May sappi 2nd quarter results

9 Forward-looking statements Certain statements in this release that are neither reported financial results nor other historical information, are forward-looking statements, including but not limited to statements that are predictions of or indicate future earnings, savings, synergies, events, trends, plans or objectives. The words believe, anticipate, expect, intend, estimate, plan, assume, positioned, will, may, should, risk and other similar expressions, which are predictions of or indicate future events and future trends and which do not relate to historical matters, and may be used to identify forward-looking statements. You should not rely on forwardlooking statements because they involve known and unknown risks, uncertainties and other factors which are in some cases beyond our control and may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements (and from past results, performance or achievements). Certain factors that may cause such differences include but are not limited to: the highly cyclical nature of the pulp and paper industry (and the factors that contribute to such cyclicality, such as levels of demand, production capacity, production, input costs including raw material, energy and employee costs, and pricing); the impact on our business of a global economic downturn; unanticipated production disruptions (including as a result of planned or unexpected power outages); changes in environmental, tax and other laws and regulations; adverse changes in the markets for our products; the emergence of new technologies and changes in consumer trends including increased preferences for digital media; consequences of our leverage, including as a result of adverse changes in credit markets that affect our ability to raise capital when needed; adverse changes in the political situation and economy in the countries in which we operate or the effect of governmental efforts to address present or future economic or social problems; the impact of restructurings, investments, acquisitions, dispositions and other strategic initiatives (including related financing), any delays, unexpected costs or other problems experienced in connection with dispositions or with integrating acquisitions or implementing restructuring and other strategic initiatives and achieving expected savings and synergies; and currency fluctuations. We undertake no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information or future events or circumstances or otherwise. sappi 2nd quarter results 7

10 Condensed group income statement Reviewed Reviewed Reviewed Reviewed Quarter Quarter Half-year Half-year ended ended ended ended Mar 2015 Mar 2014 Mar 2015 Mar 2014 Note US$ million US$ million US$ million US$ million Sales 1,338 1,573 2,715 3,072 Cost of sales 1,138 1,380 2,362 2,719 Gross profit Selling, general and administrative expenses Other operating (income) expenses (53) 1 (51) (1) Share of profit from equity investments (3) (2) (5) (4) Operating profit Net finance costs Net interest expense Net foreign exchange gain (4) (2) (6) (3) Net fair value loss on financial instruments Profit before taxation Taxation Profit for the period Basic earnings per share (US cents) Weighted average number of shares in issue (millions) Diluted earnings per share (US cents) Weighted average number of shares on fully diluted basis (millions) sappi 2nd quarter results

11 Condensed group statement of comprehensive income Reviewed Reviewed Reviewed Reviewed Quarter Quarter Half-year Half-year ended ended ended ended Mar 2015 Mar 2014 Mar 2015 Mar 2014 US$ million US$ million US$ million US$ million Profit for the period Other comprehensive (loss) income, net of tax Items that will not be reclassified subsequently to profit or loss (10) (10) Actuarial losses on post-employment benefit funds (10) (10) Tax effect of above item Items that must be reclassified subsequently to profit or loss 26 (10) 14 (52) Exchange differences on translation of foreign operations 28 (5) 20 (59) Movements in hedging reserves (3) (6) (7) 7 Movement on available for sale financial assets 1 Tax effect of above items 1 1 Total comprehensive income (loss) for the period (2) sappi 2nd quarter results 9

12 Condensed group balance sheet Reviewed Reviewed Mar 2015 Sept 2014 US$ million US$ million ASSETS Non-current assets 3,286 3,505 Property, plant and equipment 2,591 2,841 Plantations Deferred tax assets Other non-current assets Current assets 1,705 1,960 Inventories Trade and other receivables Taxation receivable Cash and cash equivalents Total assets 4,991 5,465 EQUITY AND LIABILITIES Shareholders equity Ordinary shareholders interest 1,135 1,044 Non-current liabilities 2,795 3,198 Interest-bearing borrowings 2,086 2,311 Deferred tax liabilities Other non-current liabilities Current liabilities 1,061 1,223 Interest-bearing borrowings Other current liabilities 801 1,035 Taxation payable Total equity and liabilities 4,991 5,465 Number of shares in issue at balance sheet date (millions) sappi 2nd quarter results

13 Condensed group statement of cash flows Reviewed Reviewed Reviewed Reviewed Quarter Quarter Half-year Half-year ended ended ended ended Mar 2015 Mar 2014 Mar 2015 Mar 2014 US$ million US$ million US$ million US$ million Profit for the period Adjustment for: Depreciation, fellings and amortisation Taxation Net finance costs Defined post-employment benefits paid (17) (21) (31) (38) Plantation fair value adjustments (34) (23) (52) (49) Net restructuring provisions Non-cash employee benefit liability settlement (70) (70) Other non-cash items Cash generated from operations Movement in working capital (113) (90) Net finance costs paid (38) (30) (90) (86) Taxation (paid) refunded (1) 4 (4) 3 Cash generated from operating activities Cash utilised in investing activities (38) (53) (105) (116) Capital expenditure (46) (62) (114) (133) Net proceeds on disposal of assets and businesses 6 12 Other movements Net cash generated (utilised) (39) (1) Cash effects of financing activities 28 (4) (33) (47) Net movement in cash and cash equivalents (72) (48) Cash and cash equivalents at beginning of period Translation effects (40) 1 (57) 3 Cash and cash equivalents at end of period Condensed group statement of changes in equity Reviewed Reviewed Half-year Half-year ended ended Mar 2015 Mar 2014 US$ million US$ million Balance beginning of period 1,044 1,144 Total comprehensive income (loss) for the period 84 (2) Transfers from the share purchase trust 9 5 Transfers of vested share options (6) (5) Share-based payment reserve 4 4 Balance end of period 1,135 1,146 sappi 2nd quarter results 11

14 Notes to the condensed group results 1. Basis of preparation The condensed consolidated interim financial statements for the quarter and half-year ended March 2015 have been prepared in accordance with the Listings Requirements of the JSE Limited, International Financial Reporting Standard, IAS 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by Financial Reporting Standards Council and the requirements of the Companies Act of South Africa. The accounting policies applied in the preparation of these interim financial statements are in terms of International Financial Reporting Standards and are consistent with those applied in the previous annual financial statements. The preparation of this condensed consolidated interim financial statements was supervised by the Chief Financial Officer, G T Pearce, CA(SA). The interim financial statements for the quarter and half-year ended March 2015 as set out on pages 8 to 20 have been reviewed in accordance with the International Standard on Review Engagements 2410 by the group s auditors, Deloitte & Touche. Their unmodified review report is available for inspection at the company s registered office. The auditor s report does not necessarily report on all of the information contained in this announcement/financial results. Shareholders are therefore advised that in order to obtain a full understanding of the nature of the auditor s engagement they should obtain a copy of the auditor s report together with the accompanying financial information from the issuer s registered office. Any reference to future financial performance included in this announcement, has not been reviewed or reported on by the company s auditors. 12 sappi 2nd quarter results

15 Reviewed Reviewed Reviewed Reviewed Quarter Quarter Half-year Half-year ended ended ended ended Mar 2015 Mar 2014 Mar 2015 Mar 2014 US$ million US$ million US$ million US$ million 2. Operating profit Included in operating profit are the following items: Depreciation and amortisation Fair value adjustment on plantations (included in cost of sales) Changes in volume Fellings Growth (16) (18) (33) (36) (2) (4) (5) (7) Plantation price fair value adjustment (18) (5) (19) (13) (20) (9) (24) (20) Net restructuring provisions raised Profit on disposal of property, plant and equipment (1) Profit on disposal of assets held for sale (1) (1) Asset impairment reversals (1) (3) Employee benefit liability settlement (70) (70) Black Economic Empowerment charge Headline earnings per share Headline earnings per share (US cents) Weighted average number of shares in issue (millions) Diluted headline earnings per share (US cents) Weighted average number of shares on fully diluted basis (millions) Calculation of headline earnings Profit for the period Asset impairment reversals (1) (3) Profit on disposal of property, plant and equipment (1) Profit on disposal of assets held for sale (1) (1) Tax effect of above items Headline earnings sappi 2nd quarter results 13

16 Reviewed Reviewed Mar 2015 Sept 2014 US$ million US$ million 4. Capital commitments Contracted Approved but not contracted Contingent liabilities Guarantees and suretyships Other contingent liabilities Plantations Plantations are stated at fair value less estimated cost to sell at the harvesting stage. In arriving at plantation fair values, the key assumptions are estimated prices less cost of delivery, discount rates (pre-tax weighted average cost of capital), and volume and growth estimations. Expected future price trends and recent market transactions involving comparable plantations are also considered in estimating fair value. Mature timber that is expected to be felled within 12 months from the end of the reporting period are valued using unadjusted current market prices. Immature timber and mature timber that is to be felled in more than 12 months from the reporting date are valued using a 12 quarter rolling historical average price which, taking the length of the growth cycle of a plantation into account, is considered reasonable. The fair value of plantations is a Level 3 measure in terms of the fair value measurement hierarchy as established by IFRS 13 Fair Value Measurement. Reviewed Reviewed Half-year ended Year ended Mar 2015 Sept 2014 US$ million US$ million Fair value of plantations at beginning of year Gains arising from growth In-field inventory (2) (1) Gain arising from fair value price changes 19 7 Harvesting agriculture produce (fellings) (28) (57) Translation difference (30) (48) Fair value of plantations at end of period sappi 2nd quarter results

17 7. Financial instruments The group s financial instruments that are measured at fair value on a recurring basis consist of cash and cash equivalents, derivative financial instuments and available for sale financial assets. These have been categorised in terms of the fair value measurement hierarchy as established by IFRS 13 Fair Value Measurement per the table below. Fair value (1) Fair value hierarchy Reviewed Reviewed Mar 2015 Sept 2014 US$ million US$ million Available for sale assets Level Derivative financial assets Level Derivative financial liabilities Level (1) The fair value of the financial instruments are equal to their carrying value. There have been no transfers of financial assets or financial liabilities between the categories of the fair value hierarchy. The fair value of all external over-the-counter derivatives is calculated based on the discount rate adjustment technique. The discount rate used is derived from observable rates of return for comparable assets or liabilities traded in the market. The credit risk of the external counterparty is incorporated into the calculation of fair values of financial assets and own credit risk is incorporated in the measurement of financial liabilities. The change in fair value is therefore impacted by the move of the interest rate curves, by the volatility of the applied credit spreads, and by any changes of the credit profile of the involved parties. There are no financial assets and liabilities that have been remeasured to fair value on a non-recurring basis. The carrying amounts of other financial instruments which include accounts receivable, certain investments, accounts payable and current interest-bearing borrowings approximate their fair values. 8. Material balance sheet movements Since the 2014 financial year-end, the ZAR and Euro have weakened by approximately 7% and 14% respectively to the US Dollar, the group s presentation currency, resulting in a similar decrease of the group s assets and liabilities held in the aforementioned functional currencies on translation to the presentation currency. Trade and other receivables, cash and cash equivalents and other current liabilities The decrease in cash and cash equivalents is largely attributable to working capital movements. Interest-bearing borrowings In March 2015, the group placed an aggregate principal amount of US$490 million ( 450 million) senior secured notes due 2022 at a coupon of 3.375% per annum. In addition, the group increased its US$381 million ( 350 million) to revolving credit facility to US$506 million ( 465 million) and extended the maturity date to March The proceeds of the new notes together with cash on hand and drawings of US$109 million ( 100 million) under the US$506 million ( 465 million) revolving credit facility were used to early redeem Sappi s US$272 million ( 250 million) senior secured notes sappi 2nd quarter results 15

18 due 2018 and the US$300 million senior secured notes due As a result of the early redemption, once-off charges of US$63 million were recorded in net finance costs (of which US$10 million was non-cash) which includes the pre-arranged call premiums on early redemption of the notes and the unwinding of an interest rate currency swap. Other non-current liabilities During the quarter the group transferred one of its European defined pension funds to an industrywide pension fund which resulted in a net liability derecognition of US$64 million ( 59 million). 9. Post-balance sheet event The remaining US$37 million (ZAR450 million) of our US$62 million (ZAR750 million) public bond due April 2015 were redeemed on maturity from existing cash resources. The outstanding US$7 million (ZAR90 million) vendor loan note arising on the disposal of Usutu Forest Products Company Limited to Montigny Investments Limited in June 2014 was received. 10. Segment information Quarter Quarter Half-year Half-year ended ended ended ended Mar 2015 Mar 2014 Mar 2015 Mar 2014 Metric tons Metric tons Metric tons Metric tons (000 s) (000 s) (000 s) (000 s) Sales volume North America Europe ,603 1,709 Southern Africa Pulp and paper Forestry Total 1,806 1,986 3,568 3,830 Which consists of: Specialised cellulose Paper 1,306 1,374 2,540 2,675 Forestry sappi 2nd quarter results

19 Reviewed Reviewed Reviewed Reviewed Quarter Quarter Half-year Half-year ended ended ended ended Mar 2015 Mar 2014 Mar 2015 Mar 2014 US$ million US$ million US$ million US$ million Sales North America Europe ,354 1,617 Southern Africa Pulp and paper Forestry Total 1,338 1,573 2,715 3,072 Which consists of: Specialised cellulose Paper 1,119 1,305 2,238 2,540 Forestry Operating profit excluding special items North America Europe Southern Africa Unallocated and eliminations (1) Total Which consists of: Specialised cellulose Paper Unallocated and eliminations (1) Special items (gains) losses North America (1) Europe (56) 1 (55) 1 Southern Africa (19) (4) (15) (14) Unallocated and eliminations (1) 7 (1) 7 Total (68) (4) (63) (14) Segment operating profit (loss) North America Europe Southern Africa Unallocated and eliminations (1) (4) 1 (4) 3 Total (1) Includes the group s treasury operations and our insurance captive. sappi 2nd quarter results 17

20 Reviewed Reviewed Reviewed Reviewed Quarter Quarter Half-year Half-year ended ended ended ended Mar 2015 Mar 2014 Mar 2015 Mar 2014 US$ million US$ million US$ million US$ million EBITDA excluding special items North America Europe Southern Africa Unallocated and eliminations (1) Total Which consists of: Specialised cellulose Paper Unallocated and eliminations (1) (1) Includes the group s treasury operations and our insurance captive. 18 sappi 2nd quarter results

21 Reconciliation of EBITDA excluding special items and operating profit excluding special items to segment operating profit and profit for the period Special items cover those items which management believe are material by nature or amount to the operating results and require separate disclosure. Reviewed Reviewed Reviewed Reviewed Quarter Quarter Half-year Half-year ended ended ended ended Mar 2015 Mar 2014 Mar 2015 Mar 2014 US$ million US$ million US$ million US$ million EBITDA excluding special items Depreciation and amortisation (66) (76) (137) (163) Operating profit excluding special items Special items gains (losses) Plantation price fair value adjustment Net restructuring provisions raised (2) (2) (3) (3) Profit on disposal of property, plant and equipment 1 Profit on disposal of assets held for sale 1 1 Asset impairment reversals 1 3 Employee benefit liability settlement Black Economic Empowerment charge (1) (1) (1) (1) Fire, flood, storm and other events (4) (9) Segment operating profit Net finance costs (97) (48) (134) (96) Profit before taxation Taxation (19) (19) (27) (23) Profit for the period sappi 2nd quarter results 19

22 Reviewed Reviewed Mar 2015 Mar 2014 US$ million US$ million Segment assets North America 1,049 1,063 Europe 1,278 1,620 Southern Africa 1,262 1,546 Unallocated and eliminations (1) 33 (32) Total 3,622 4,197 Reconciliation of segment assets to total assets Segment assets 3,622 4,197 Deferred taxation Cash and cash equivalents Other current liabilities Taxation payable 31 8 Liabilities associated with assets held for sale 3 Total assets 4,991 5,607 (1) Includes the group s treasury operations and our insurance captive. 20 sappi 2nd quarter results

23 Supplemental information (this information has not been audited or reviewed) General definitions Average averages are calculated as the sum of the opening and closing balances for the relevant period divided by two Black Economic Empowerment charge represents the IFRS 2 non-cash charge associated with the BEE transaction implemented in fiscal 2010 in terms of Black Economic Empowerment (BEE) legislation in South Africa Fellings the amount charged against the income statement representing the standing value of the plantations harvested NBSK Northern Bleached Softwood Kraft pulp. One of the main varieties of market pulp, produced from coniferous trees (ie spruce, pine) in Scandinavia, Canada and northern USA. The price of NBSK is a benchmark widely used in the pulp and paper industry for comparative purposes SG&A selling, general and administrative expenses Non-GAAP measures The group believes that it is useful to report certain non-gaap measures for the following reasons: these measures are used by the group for internal performance analysis; the presentation by the group's reported business segments of these measures facilitates comparability with other companies in our industry, although the group's measures may not be comparable with similarly titled profit measurements reported by other companies; and it is useful in connection with discussion with the investment analyst community and debt rating agencies These non-gaap measures should not be considered in isolation or construed as a substitute for GAAP measures in accordance with IFRS Capital employed shareholders equity plus net debt EBITDA excluding special items earnings before interest (net finance costs), taxation, depreciation, amortisation and special items EPS excluding special items earnings per share excluding special items and certain once-off finance and tax items Headline earnings as defined in circular 2/2013, reissued by the South African Institute of Chartered Accountants in December 2013, which separates from earnings all separately identifiable remeasurements. It is not necessarily a measure of sustainable earnings. It is a Listings Requirement of the JSE Limited to disclose headline earnings per share Net assets total assets less total liabilities Net asset value per share net assets divided by the number of shares in issue at balance sheet date Net debt current and non-current interest-bearing borrowings, and bank overdrafts (net of cash, cash equivalents and short-term deposits) Net debt to total capitalisation net debt divided by capital employed Net operating assets total assets (excluding deferred tax assets and cash) less current liabilities (excluding interest-bearing borrowings and overdraft). Net operating assets equate to segment assets ROCE annualised return on average capital employed. Operating profit excluding special items divided by average capital employed ROE annualised return on average equity. Profit for the period divided by average shareholders' equity RONOA return on average net operating assets. Operating profit excluding special items divided by average segment assets Special items special items cover those items which management believe are material by nature or amount to the operating results and require separate disclosure. Such items would generally include profit or loss on disposal of property, investments and businesses, asset impairments, restructuring charges, nonrecurring integration costs related to acquisitions, financial impacts of natural disasters, non-cash gains or losses on the price fair value adjustment of plantations and alternative fuel tax credits receivable in cash The above financial measures are presented to assist our shareholders and the investment community in interpreting our financial results. These financial measures are regularly used and compared between companies in our industry sappi 2nd quarter results 21

24 Supplemental information (this information has not been audited or reviewed) Summary Rand convenience translation Quarter Quarter Half-year Half-year ended ended ended ended Mar 2015 Mar 2014 Mar 2015 Mar 2014 Key figures: (ZAR million) Sales 15,686 17,058 31,101 32,237 Operating profit excluding special items (1) 1,219 1,030 2,039 1,627 Special items gains (1) (797) (43) (722) (147) EBITDA excluding special items (1) 1,993 1,854 3,608 3,337 Profit for the period Basic earnings per share (SA cents) Net debt (1) 23,078 23,775 23,078 23,775 Key ratios: (%) Operating profit excluding special items to sales Operating profit excluding special items to capital employed (ROCE) (1) EBITDA excluding special items to sales Return on average equity (ROE) (1) Net debt to total capitalisation (1) (1) Refer to page 21, supplemental information for the definition of the term. The above financial results have been translated into Rands from US Dollars as follows: assets and liabilities at rates of exchange ruling at period end; and income, expenditure and cash flow items at average exchange rates. Reconciliation of net debt to interest-bearing borrowings Mar 2015 Sept 2014 US$ million US$ million Interest-bearing borrowings 2,315 2,474 Non-current interest-bearing borrowings 2,086 2,311 Current interest-bearing borrowings Cash and cash equivalents (399) (528) Net debt 1,916 1, sappi 2nd quarter results

25 Supplemental information (this information has not been audited or reviewed) Exchange rates Mar Dec Sept Jun Mar Exchange rates: Period end rate: US$1 = ZAR Average rate for the Quarter: US$1 = ZAR Average rate for the YTD: US$1 = ZAR Period end rate: 1 = US$ Average rate for the Quarter: 1 = US$ Average rate for the YTD: 1 = US$ Sappi ordinary shares (JSE:SAP) ZAR April 2013 June 2013 September 2013 December 2013 March 2014 June 2014 September 2014 December 2014 March 2015 Sappi ordinary shares (ZAR) sappi 2nd quarter results 23

26 Notes 24 sappi 2nd quarter results

27 (Registration number 1936/008963/06) Issuer Code: SAVVI JSE Code: SAP ISIN: ZAE Sappi has a primary listing on the JSE Limited and a Level 1 ADR programme that trades in the over-the-counter market in the United States South Africa: Computershare Investor Services Proprietary Limited 70 Marshall Street Johannesburg 2001 PO Box Marshalltown 2107 Tel +27 (0) United States: ADR Depositary: The Bank of New York Mellon Investor Relations PO Box Church Street Station New York, NY Tel JSE Sponsor: UBS South Africa (Pty) Ltd This report is available on the Sappi website:

28 Tel +27 (0) Ameshoff Street Braamfontein Johannesburg SOUTH AFRICA